Top 9 Utility Stocks to Watch for Strong Returns in Late 2021

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The stock market has been red hot again in 2021, with the typical component in the S&P 500 up about 17% year-to-date. And some fast-growing names are up even more. So investors would be forgiven, then, if they largely overlooked sleepy utility stocks.

For starters, most utility stocks aren't particularly "growthy," as they are highly regulated and largely bound by their existing geographical footprint.

Furthermore, the sector has underperformed the rest of the S&P; major utilities as a group are only up 5% ‒ about a third of the gains seen by other large-cap stocks ‒ as measured by the popular Utilities Select Sector SPDR Fund (XLU).

But long-term investors know that past performance is no guarantee of future returns, and a lot of the appeal that utility stocks have to offer comes from stability and income potential via dividends. 

Here are nine top-rated utility stocks that could be worth a look in the second half of 2021. While they're a less-flashy path to profits in your portfolio, they will allow you to sleep soundly regardless of Wall Street volatility through year's end.

Data is as of July 26. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Analyst ratings courtesy of S&P Global Market Intelligence, unless otherwise noted.

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AES

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• Market value: $16.0 billion
• Dividend yield: 2.5%
• Analysts' opinion: 6 Strong Buy, 3 Buy, 2 Hold, 0 Sell, 0 Strong Sell

AES (AES, $24.00) operates as a diversified power generation and utility company that is pretty typical of what many investors think about when they consider the best utility stocks to invest in. Namely, AES owns and operates plants to generate and sell power to customers.

What makes AES interesting is that it is one of the 10 largest domestic utilities out there as measured by market capitalization, currently valued at $16 billion. It is incredibly diversified from a generation perspective, with plants fueled by traditional sources like natural gas, coal and oil, as well as renewable energy like hydro, solar, wind and biomass. 

Its operations crank out 30,308 megawatts, or enough to power roughly 20 million homes. Beyond its domestic operations in Ohio, Indiana and the Mid-Atlantic region, AES also continues to grow abroad in Central and South America, as well as the Caribbean Islands. 

In June, AES saw coverage initiated at investment firm Susquehanna with a price target of $32 a share ‒ more than 33% above its current price. The shares have been pretty sluggish so far in 2021, up only by low single digits, while the broader S&P 500 Index is up about 17%. But if this recent target holds, then investors who buy in now could really reap significant rewards in both share price and dividends.

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Entergy

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• Market value: $20.8 billion
• Dividend yield: 3.7%
• Analysts' opinion: 9 Strong Buy, 4 Buy, 5 Hold, 0 Sell, 0 Strong Sell

New Orleans-based Entergy (ETR, $103.78) generates electricity through the operation of gas, oil, nuclear, coal, hydroelectric and solar power sources. This $21 billion utility serves Arkansas, Mississippi, Texas and Louisiana.

What's particularly interesting about ETR is its expertise in the decommissioning of nuclear power plants located in the northern U.S., in addition to its core power generation business. Obviously, shutting down a nuclear power plant is no easy task and contracts ETR lands to transition away from older facilities are fairly lucrative, which helps to offer a bit of diversity to its revenue stream.

Over the last 12 months, Entergy stock has been largely flat. But the dividend offered by ETR is increasingly attractive, particularly now that the typical stock in the S&P 500 offers such a meager yield, with an average payout of just under 1.4%. 

Furthermore, as far as utility stocks go, this one's dividend payment remains only about two-thirds of total profits, so there's a good chance it could move even higher over time.

Wall Street seems bullish on ETR's share price going forward, too, with S&P Global Market Intelligence putting the average 12-month price target at $117.56. This implies expected upside of more than 13% over the next 12 months or so.

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Evergy

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• Market value: $14.9 billion
• Dividend yield: 3.3%
• Analysts' opinion: 6 Strong Buy, 1 Buy, 1 Hold, 1 Sell, 0 Strong Sell

Evergy (EVRG, $65.15) is an electricity provider in Kansas and Missouri with some 55,000 miles of overhead and underground lines that serve 1.6 million customers with power created at its coal, hydroelectric, uranium and natural gas plants, as well as renewable facilities that harness wind and solar power.

EVRG is a slow-and-steady stock that isn't exactly known for breaking out, but it has a strong history of income potential that many utility stock investors may be drawn to. 

Specifically, as recently as 2004, the company was paying 19 cents per share, but now distributions are nearly three times that at 53.5 cents. What's more, with projected fiscal 2022 earnings per share of $3.50, EVRG has more than enough headroom to cover that dividend and perhaps even continue to increase it as time goes on.

In July, Seaport Global Securities was just the latest research firm to call the stock a Buy. Plus, the consensus targets from Wall Street firms project continued upside from here on top of that dividend potential. 

For long-term investors seeking out utility stocks, EVRG may be a sleepy, but profitable pick worth a look.

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NextEra Energy

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• Market value: $150.9 billion
• Dividend yield: 2.0%
• Analysts' opinion: 10 Strong Buy, 5 Buy, 6 Hold, 0 Sell, 0 Strong Sell

NextEra Energy (NEE, $76.91) generates and distributes electric power to about 5.6 million customers primarily in Florida, and another 6 million or so others via wholesale energy markets that make it competitive across North America.

One of the behemoths of the energy generation industry, this company has a huge $151 billion market value right now and racks up roughly $20 billion in annual revenue. This kind of scale makes NEE particularly attractive to low-risk dividend investors looking for utility stocks that will hang tough in any market environment.

NEE stock is flat for the year to date, despite an uptrend lifting the broader market. Wall Street is still bullish on the stock going forward. In July, CFRA analyst Paige Meyer reiterated her Buy rating on NextEra Energy, citing "a favorable regulatory environment for further renewables development." 

She also has a $90 price target on the stock. That implies double-digit upside potential on top of steady income and rock-solid operations that dwarf many other competitors.

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Otter Tail

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• Market value: $2.1 billion
• Dividend yield: 3.1%
• Analysts' opinion: 2 Strong Buy, 1 Buy, 1 Hold, 0 Sell, 0 Strong Sell

A smaller utility stock valued at only about $2 billion, Otter Tail (OTTR, $49.94) has a relatively modest electricity business, serving about 150,000 residential, commercial and industrial customers.

Oddly enough, however, OTTR also has a modest manufacturing segment engaged in machining, metal parts stamping and the production of plastic containers, among other services. 

The whole company posted about $890 million in revenues last year, with the electric utility arm of the company representing more than half of that at around $446 million. That proves it's not a misnomer to call this a utility stock based on the share of the top line. 

Furthermore, the utility arm is much more profitable, representing $1.63 of last year's $2.34 per share in total earnings for a 70% share of the profits.

Still, that other manufacturing-focused part of OTTR is what makes it an interesting play among utility stocks right now as it taps into higher prices and recovering demand across the industrial sector. Shares have slightly outperformed the S&P 500 Index so far in 2021.

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PG&E

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• Market value: $19.7 billion
• Dividend yield: N/A
• Analysts' opinion: 7 Strong Buy, 3 Buy, 5 Hold, 0 Sell, 0 Strong Sell

PG&E (PCG, $8.75) is an electricity and natural gas supplier that primarily serves northern and central California across a network of roughly 125,000 circuit miles of power lines.

Some investors may know PCG for rather unfortunate reasons. The utility stock was rocked in the wake of the 2018 Camp Fire that killed more than 80 people and went down as the deadliest and most destructive fire in California history. PG&E ultimately pleaded guilty to accusations that its equipment caused the blaze, including responding to 84 separate charges of involuntary manslaughter.

But while shares remain a far cry from the roughly $70 price we saw at their 2017 peak, they have actually doubled from their 2019 lows and seem to have stabilized now that the major part of litigation relating to the Camp Fire appears to be resolved.

To wit: Wells Fargo upgraded this embattled utility stock to Overweight (Buy) in May, and raised its price target to $15.50 ‒ a mammoth 77% run from current levels if achieved. That's slightly below the average 12-month price target of $14.31, per S&P Global Market Intelligence, though that still represents expected upside of 63.5%. 

It's a risky bet, to be sure, but it could pay off in a big way for investors if things go well for PG&E in the months ahead.

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Sunnova Energy International

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• Market value: $3.8 billion
• Dividend yield: N/A
• Analysts' opinion: 9 Strong Buy, 6 Buy, 1 Hold, 0 Sell, 0 Strong Sell

Sunnova Energy International (NOVA, $33.79) is one of the highest-rated utility stocks out there right now, thanks to a focus on residential solar and battery services across the U.S. The company installs and services arrays for more than 116,000 customers to collectively offer a patchwork solar power "grid" that can generate 790 megawatts of energy.

Admittedly, NOVA hasn't done that impressively in 2021, with shares down 25% or so, compared with an otherwise bullish market for stocks. But since its 2019 initial public offering (IPO) that raised $170 million to fund its growth, Sunnova has exploded. Specifically, the stock closed at $11.25 on July 25, 2019 ‒ its first day of trading ‒ and is now priced at roughly three times that figure. 

That kind of longer-term momentum is noteworthy, particularly given that NOVA is one of the few utility stocks out there that can honestly claim significant growth potential above its current footprint.

Wall Street remains quite optimistic the profits will keep rolling in for Sunnova in the future, based on recent price targets. In July, for instance, RBC Capital initiated coverage of this solar utility stock with an Outperform (Buy) rating and $59 price target. That represents expected upside of roughly 75% from current levels.

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UGI

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• Market value: $9.6 billion
• Dividend yield: 3.0%
• Analysts' opinion: 3 Strong Buy, 0 Buy, 1 Hold, 0 Sell, 0 Strong Sell

Founded way back in 1882, Pennsylvania-based UGI (UGI, $46.18) is mainly a natural gas and propane distribution company.

Customers may recognize its dominant AmeriGas Propane brand, which is part of a network serving more than 1.5 million residential, commercial and industrial customers through 1,800 distribution locations nationwide. 

On top of that, UGI distributes natural gas to nearly 700,000 customers in eastern and central Pennsylvania and operates electric generation facilities, which include coal-fired, landfill gas-fueled, solar-powered and natural gas-fired plants.

This large scale coupled with a diversified utility operation allows UGI even greater stability than many of its peers. But more importantly, in 2021, this has allowed UGI to make the most of the uptick in demand we've seen associated with a recovering national economy. Specifically, this utility stock is up more than 32% for the year to date ‒ doubling the performance of the S&P 500 Index in the same period.

Based on recent analyst upgrades, some investors expect that run to continue, too. In June, UGI was upgraded to Buy from Neutral at BofA Securities, with a price target of $51 ‒ representing more than double-digit expected upside.

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Vistra

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• Market value: $9.2 billion
• Dividend yield: 3.1%
• Analysts' opinion: 7 Strong Buy, 3 Buy, 1 Hold, 0 Sell, 0 Strong Sell

Texas-based utility Vistra (VST, $19.10) provides electricity and natural gas operations to residential, commercial and industrial customers across a massive service area that spans 20 states in the U.S. and the District of Columbia. 

VST operates in six of the seven wholesale markets that allows utility companies to compete for customers under a deregulated model, as well as in both Canada and Japan. All told, Vistra offers nearly 5 million residential, commercial and industrial connections.

Vistra also has a very forward-looking energy mix, with more than 50 different renewable energy plants and operations that make it one of the largest purchasers of wind power on the planet. 

The kicker is that VST is currently constructing a 1,600-MWh battery energy storage system in California which will be the largest of its kind in the world when it comes online. It will also be a great example of modernized utility systems with a smarter grid that extends beyond simply installing turbines and solar cells.

Vistra was just upgraded to Buy at Guggenheim in July. And S&P Global Market Intelligence has analysts' average 12-month price target at $23.45, representing expected upside of nearly 23% over the next 12 months or so.